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Africa’s Poverty Puzzle – Non-responsive economies to growth and income distribution

Despite sustained growth in many African countries over the last two decades and growth of ‘job opportunities’, most countries have not seen any measurable reduction in poverty.

Research and data show that jobs created in the last 3 to 4 decades in Africa have been poor, crap, and outright useless! It is employment that does not uplift the economic well-being of the population and has not fostered any reduction in poverty among the majority of Africans.

Let me explain.

“Unemployment” Problem

 


Looking at most countries in Sub-Sahara Africa (SSA), as a matter of fact, we don’t have a severe “employment problem” relative to similar developing economies. The overall unemployment rate in SSA stood at 6.1 percent (2020 Modeled ILO SSA)  in comparison to the global average of around 5.4 percent. In comparison, many low-income countries like Ethiopia, Ghana, Tanzania, and Uganda have unemployment rates of between 1-5%! That’s incredibly low and can only be compared to developed countries. The question is … what is happening with this data… or its interpretation?

Unemployment, total (% of total labor force) (modeled ILO estimate) – Sub-Saharan Africa. International Labour Organization, ILOSTAT database. Data retrieved in June 21, 2020


The issue is in part the definition of unemployment; and part ‘job opportunities’ in most African countries. Jobs available are low-wage-quality jobs, poor benefits, and without any security. For lack of a better name, crap jobs. The low-income countries have massive informal sectors that provide these ‘low-quality’ jobs that are primarily based on family or household enterprises. Unfortunately, the contribution of such jobs to the economy is non-existent and barely for survival and sustenance. Their statistical documentation and assessment of job security and impact on the economy is not easily quantifiable.

Africa is made up of millions of these tiny firms consisting of a single entrepreneur working with either unpaid workers likely to be family members. This is also known as subsistence entrepreneurship with minimal business skills. In addition, more than 67% of these household enterprises in urban areas are formed because of a lack of any other ‘formal’ job opportunities. In short, it is not entrepreneurship… it is survival and economic endurance while waiting for a more stable, secure and formal ‘job’.

Working Poor

ILO estimates that 75% of jobs in SSA are ‘vulnerable’ since the jobs are based on workers employed on their own account or working for a close family member. This leads to an overwhelming majority of young people in Africa both in rural and urban areas engaging in informal ‘self-employment’. 82% of jobs in Africa have been classified as ‘Working Poor” compared to the global average of 39%.

In terms of ‘employment’ description, you need to actively be looking for a job. When you have given up and not searching anymore or non-eligible when your skill and experience level is beyond market eligibility, then this falls out of ‘unemployment’ calculation.

African Poverty Puzzle

Worse still, there has been no statistical relationship between Africa economic growth and the rate of growth of formal employment. This goes against the common global norm where there is a statistically significant relationship between the growth of GDP and employment growth. According to Kapos (2005), between 1991 and 2003, for every 1percenage point of additional GDP growth, total employment grew between 0.3 and 0.38 percentage points. This has not happened in Sub-Sahara Africa. It’s a dilemma most economists and policymakers shun away from!

In general, growth is good. Economic prosperity as measure by GDP growth is good for the poor and poverty declines as per-capita income rise. In addition, poverty is also ‘ideally’ reduced by an increase in income distribution within most economies. However, these two factors have shown the lowest responsiveness to poverty changes in Africa than any of the world’s developing regions (Page 2015a). This has been directly attributable to the lack of structural transformation and movement of the workforce from Agriculturally based economies into manufacturing-based economies.

What is the solution?

The direct answer – Industry! A structural change from Agriculture into manufacturing. I’m not talking about informal subsistence entrepreneurship – but organized, formal, and structured SME development with global quality products and standards that can compete with the rest of the world. This will result in formal and value add quality jobs, with benefits and security that ultimately reduce systemic poverty in Africa.

This is our mission at Viwanda.africa.

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